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Determining Employment Status Guidelines
Employment, Status, Determining, Employee, Employer,
Guidelines, Tax, National Insurance, Organisation,
Contractor, Lecturers, Teachers, Instructors, External.
BU Guidelines for Determining Employment Status
1st April 2012
1st April 2013
Finance & Performance
Staff
Determining Employment Status Guidelines
Purpose of Guidelines
It is the responsibility of the University to ensure the correct tax treatment of
individuals is applied. Under IR56 Guidelines, if HM Revenue & Customs discover
that the University should have paid tax and National Insurance for an individual
who they would consider to be an employee but the University has treated them
as self employed or not deducted the appropriate rates of tax and National
Insurance, the University would be liable for:
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Any unpaid tax or National Insurance (NI) implications it should have paid
on behalf of the worker
Interest on the tax and NI
Financial Penalties
The level of penalty can rise from a maximum of 30% for careless mistakes to a
maximum of 100% for deliberate and concealed mistakes with the under reported
benefit being backdated up to six years.
Status Guidelines
The determination of an individual’s employment status is sometimes not evident
and requires an analysis of the facts and circumstances surrounding each
particular case. It is also necessary to determine whether the individual works
under a contract of service (employees) or a contract of services (independent
self employed contractor).
No one test exists to decide if a person working in the University, and whose
employment status is unclear, is an employee or not. Employment tribunals faced
with this question have examined each aspect of the relationship between the
worker and the organisation and on the facts, as found, have decided whether
there is an express or implied contract of employment (i.e. the person has a
contract of service and is an employee), or whether there is a contract for services
(i.e. the person is self-employed).
In order to determine the nature of a contract, it is necessary to apply common
law principles. The courts have, over the years, laid down some factors and tests
that are relevant to determining the correct status. The key tests of employment vs
self employment are well established and include:
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Can the employer dictate where, when and how the work should be done;
or, to put it another way, does the individual work under the direction and
control of the organisation's management?
Is there mutuality of obligation (i.e. does the individual expect to be
provided with work and is he/she obliged to make herself/himself
available for it)?
Is he/she obliged to do the work he/she is given?
Is it necessary for the work to be done regularly, and possibly within a
certain time?
Has the relationship between the parties endured for a substantial time?
Does the organisation provide the tools, equipment and/or clothing
necessary to do the work?
Does the individual attend at the employer's premises to perform the
work?
If, and when, the individual is at the place of work, is he/she regarded as a
member of staff (e.g. does he/she have terms and conditions of
engagement similar or identical to those of the organisation's employees;
access to the grievance and disciplinary procedure; etc.)?
Is the individual paid weekly or monthly like those employees of the
organisation who work under contracts of employment?
Does the organisation deduct PAYE and social security contributions from
the payments to the individual?
Is there a duty rota requiring the individual's attendance at certain times on
certain days?
Does the individual have to ask management for time off?
Is the individual entitled to, or does he/she receive, holiday pay,
commission, bonus (annual or otherwise) or similar payments from the
organisation?
Is any part of the payments to the individual attributable to a regular basic
wage?
Are there any regular or assured working hours for the individual?
Is the 'engagement' subject to termination by notice from either side?
The extent of control exerted by the department or institution over the work
undertaken should always be considered; the concept of control includes matters
such as the power to discipline and dismiss, the fixing of hours or times for work
and determining when holidays are taken. The greater the degree of control, the
greater the likelihood of the individual being found to be an employee. Case law
illustrates that the determination of employment status is not a mechanical
exercise of running through items on a check-list to see whether they are present
in, or absent from, a given situation. Instead, determination of employment status
involves building a picture from the accumulation of detail and making an
informed, considered, qualitative assessment of the whole.
To aid with the decision process and for individuals requesting self employment
status, a questionnaire should be completed by the relevant School/Professional
Service before engagement and returned to Kevin Welford in FCS.
A link to the questionnaire is below:
Shortcut to Employment Status Questionnaire.lnk
In addition the HMRC website has an employment status indicator which can also
be used to aid employment status decisions. A link to the website is included
below:
http://www.hmrc.gov.uk/calcs/esi.htm
Examples of non- standard working arrangements in the University
In the following examples, and using the questions as outlined above, HMRC
would normally rule that an employment relationship would normally exist.
1. Lecturers, teachers and instructors.
Lecturers, teachers, instructors should always be treated as employees of the
University unless the following applies:
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the time the person spends teaching/lecturing is minimal in terms of the
working time available or the instruction is given only occasionally. In
practical terms this means that prior to giving the instruction, they have
agreed to give it on not more than 3 days in 3 consecutive months; or
the instruction is given as public lectures. A public lecture is regarded as
one which any member of the public can attend without prior notice; that
is, it is not part of a course or confined to a particular group or society.
2. Temporary ad hoc research assistants (for a period greater than three
months)
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University provides tools and equipment
Work on University's premises
Required to work for a specified number of hours/year
No benefits such as annual or maternity leave
Paid as claimed
Department controls direction of work
Mutuality of obligation
3. Demonstrator (for a period of greater than three months or for more than
one term)
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University provides tools and equipment
Work on University's premises
Regular hours per term
No benefits such as annual leave
Paid on a termly basis
Department controls direction of work
Mutuality of obligation
4. External consultant
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University monitors quality of work
Responsible to and receives direction from a university employee
Mutuality of obligation
Deadlines set for completion of work
No benefits such as annual or maternity leave
Paid on a regular basis
Working only for the University during a one year period
Cannot send a substitute
University provides tools and equipment
5. Examiners, moderators, invigilators
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In normal circumstance external examiners should be considered as
employees of the University and paid through the payroll system. Tax will
be deducted at basic rate unless the examiner completes a P524
declaration form. There is no requirement to account for class1 NICs
unless their contract exceeds 12 months.
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External examiners can only be considered as self employed if they
examine on courses above first degree level (e.g.masters' degrees and
doctorates).
In the following examples, and using the questions as outlined above, HMRC
would normally rule that a self-employment relationship would normally exist.
1.External consultant
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Uses own equipment and works from home
Work for other organisations
Not obliged to carry out the work personally, could get a substitute to
undertake the work
No regular working hours
Assured up to x days per year of work
No benefits such as annual or maternity leave
Paid as claimed
Long standing arrangement
Not expected to undertake work on a regular basis
2. Special guest speaker
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Invited from another university to give one hour lecture
Works on University premises
University provides equipment
University specifies broad topic of lecture, but not detail
Paid a one-off fee and travel and expenses
In addition 'Yes' answers to the following questions would be more consistent with
self-employment under a contract for services, i.e. non-employee status:
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Does the individual also do work for another company or organisation?
Has the Inland Revenue accepted for tax purposes that the individual is
accountable as a self-employed person?
Has the individual invested his/her own capital in the undertaking and/or
does he/she stand to gain or lose from its commercial success?
Is the company or organisation for whom the individual is providing work
or a service his/her professional client?
Is the individual paid on a fee basis?
Does he/she invoice the principal for his/her services?
Is the individual recognisable in business on his/her own account, whether
as a person, a partnership or a limited company?
Is he/she a registered VAT trader?
Is he/she not obliged to carry out the work personally and able to send a
substitute?
Students
If students are employed during holidays they must complete a P38s Student
Employees form, if appropriate, otherwise a P46.The P38s is a declaration that
their earnings are below the annual personal allowance for the tax year (£6,475
2009/10) and therefore no income tax or NICs will be deducted from their
earnings.